Dollar Up, gains from euro’s fall

The dollar was higher in Asia on Friday morning. It is on track for the second week of gains against the euro. The question now is when central banks will start raising interest rates in response to rising inflation.

The US Dollar Index, which measures the greenback’s value against a basket of other currencies, rose 0.12 percent to 95.657.

The USD/JPY pair rose 0.10 percent to 114.36 in October, with Japan’s national consumer price index (CPI) and national core CPI both growing 0.1 percent year on year. The AUD/USD pair fell 0.06 percent to 0.7275, while the NZD/USD pair rose 0.02 percent to 0.7037.

The USD/CNY exchange rate increased by 0.01 percent to 6.3856. While the GBP/USD exchange rate decreased by 0.01 percent to 1.3486 as inflation reached a 10-year high in October, bets on the Bank of England raising interest rates in December.

The euro fell 0.6 percent last week, sending the dollar to a 16-month high. It last traded at 1.1372 after falling to $1.1263 earlier. However, investors believe it remains vulnerable as fundamentals and positioning shift to favor the dollar. Several central bankers will speak later in the day, including European Central Bank President Christine Lagarde, Bank of England economist Huw Pill, and US Federal Reserve officials Christopher Waller, Richard Clarida, and Mary Daly.

Bets are also increasing on the Reserve Bank of New Zealand implementing a hawkish monetary policy that will raise interest rates by 50 basis points when it meets next week.

Rates markets are still jittery, and the data pushed the two-year bellwether swap to a new high for the year, putting the bid behind the kiwi.

European Central Bank

Following last week’s inflation surprise, retail sales in the United States outperformed expectations this week. Meanwhile, in Europe, COVID-19 is on the rise, car sales fell for the fourth month in a row, and central bankers have pledged to keep interest rates low.

Another factor limiting movement is the expectation that US President Joe Biden will name his nominee to lead the Fed before Thanksgiving on Nov. 25, with incumbent Jerome Powell and Governor Lael Brainard as frontrunners.

If Powell is nominated, the market will increase its demand for the dollar/yen. “Brent Donnelly, trader and President of analytics firm Spectra Markets, is quoted as taking a slightly more hawkish approach to rate setting in the face of inflation.

Bitcoin Battered

Bitcoin was on track to have its worst week since May, falling 13%. It was recently trading near a three-week low of $57,033. The Turkish lira has hit a record low in emerging markets. Bitcoin is trading below $60,000 and on track for its worst week in six months. Meanwhile, the cryptocurrency sentiment is fragile.